How to make a family finance plan

Every parent wants the best for their kids, including giving them the best possible start in life. Maybe you want to help them with the costs of studying at university, getting married or buying a home.

If you want to make these dreams a reality it’s time to make a financial plan for your family.

Man coming up with a financial plan with his partner and two children behind him

How to make a financial plan for your family

Children can be expensive, and for many parents the costs don’t end when they start work or move out. More and more parents are helping their kids with getting onto the property ladder.

Set financial goals

The first step to making a financial plan is to consider your goals.

Not every child will go to university, or get married, but all children do need a place to live in adulthood.

great expectations of uk teenagers

You might not be able to buy a house for your children, but could you afford to save up £10,000 to help them with a deposit on a house?

Work out how to get there

If you wanted to save £10,000 to help your child with a deposit on a first house, how much do you need to save, and for how long?

Assuming an annual interest rate of 5%, you need to save £35 per month for 19 years and 10 months to get to £10,000. That’s according to the Money Advice Service’s Savings calculator – try it yourself and see what you could achieve.

£10,000 might seem like a mountain to climb, but £35 a month? That’s doable.

Track your spending

In order to ensure you can save enough to meet your goals you need to get a handle on your current spending.

Track your spending with a spreadsheet, a budgeting app on your smartphone or a pen and paper. Add all income and outgoings so you can get an accurate picture of your cash flow. This should help you to understand what you need to cut to meet your savings goals.

Divide your spending into essential and non-essential. This way you can see if there are any obvious savings to make. Quickly you’ll be able to identify how much your family spends on unnecessary outgoings – cash that could otherwise be used to save or invest for the future.

You might be able to make savings on compulsory things like utility bills too. Switching suppliers tends to help you get the best deals. Comparison sites like uSwitch, Money Supermarket and Compare the Market can help you compare and find better deals.

Create a family budget planner

And stick to it.

It’s impossible to predict all expenses, so you might want to make “pots” of money available for certain things each month. Maybe it’s £100 a month for entertainment, technology upgrades or new clothes, for example.

Some simple family financial planning can help to ensure that these small, unplanned costs don’t send your family finance plan off course.

Matching your plan with your actual spending can help you see where things went wrong, or right.

What to do with your savings

Clear outstanding debts

The first thing to do is clear any outstanding debts, as the interest you pay on this could eliminate any interest gained from your savings (or growth from your investments).

Student debt is a bit different because:

  • You only make payments if you earn above £494 per week, £2,143 per month or £25,716 per year
  • The debt doesn’t affect your credit score
  • If it’s not paid after 30 years it is written off

Find out more about student debt and whether it’s still worth going to university here.

Create an emergency fund

Once debts are cleared, many people recommend having an emergency fund in an easy-access cash account to pay for unexpected costs such as home improvements or sudden changes in circumstances.

Save or invest for the long term

The best ways to try to grow your money over the long term is:

  • High interest cash savings accounts
  • Investments

Cash savings accounts are offering relatively low interest rates – between 2% and 5% annual interest. The cash savings accounts with the best interest tend to be regular savers, where a minimum monthly deposit is required.

Investments tend to outperform cash savings over the long term, so you might consider investing your money instead of saving it. This comes with the risk that the value of your investments could fall.

Involve the whole family in your financial planning

Perhaps the most important thing is to talk to your partner and others about your financial health. Work out as a family what you think you could save money on, and what you are hoping to be able to pay for in the future.

Remember – this affects them too, and including them in your family’s financial decision making can help everyone understand how they can help, and why. It could even be a great way to get your kids into the saving habit.

By being open about your financial successes, worries and goals you can better understand what you are trying to achieve as a family and stay on the right path.

Note: We take care to ensure Talking Finance content is accurate at the time of publication. Individual circumstances can differ so please don’t rely on it when making financial decisions.